South India will witness a significant ramp up in cement capacity this fiscal. About 17 mt of fresh capacity will be added in Andhra Pradesh, the largest cement market in the southern region. However, this capacity built-up comes at a time when the state faces prolonged period of slump in cement demand. The installed capacity in the south is expected to reach 127 mt including 71 mt in Andhra Pradesh, 34 mt in Tamil Nadu, and 22 mt in Karnataka. In Andhra Pradesh, the Nalgonda cluster will account for close to 9 mt of fresh capacity, followed by the Yerraguntla 3.20 mt and Kurnool with 3 mt. The companies whose cement capacities are expected to increase include Jaypee Cements (2.50 mt), Zuari Cements (2 mt), Penna Cements (1.50 mt), NCL (1.40 mt), and Andhra Cements and KCP Cements (1 mt each).

In Tamil Nadu, Madras Cements and Chettinad Cement will be adding 2 mt each of fresh capacity in early next financial year. Work on these two plants was underway and will go on stream at a time when no dramatic increase in demand will be in sight.

Considering that glut in Andhra Pradesh companies will dispatch cement in markets at quite a distance from the plant like Tamil Nadu, West Bengal, Assam and Maharashtra, adding the freight cost substantially. Recently, the Railways has raised its basic freight rate by 1-5 per cent and has been structured in such a way that it is marginal for short lead and progressively higher for longer distances. This translates into cement price hike ranging from Rs 25 – 40 a tonne of cement or approximate increase of Rs 2 a bag at the highest slab. According to reports, cement now is sold at Rs 210-235 a bag in Andhra Pradesh, Rs 250-255 in Tamil Nadu, Rs 250-270 in Karnataka and Rs 300 in Kerala.